Lenders' rates out of sync with OCR

July 03, 2018

The Reserve Bank of Australia (RBA) has once again kept the official cash rate on hold at 1.50%, marking the 23rd month in a row that it has been left unchanged.

However, despite a stagnant cash rate, tightening money markets may force lenders to raise mortgage rates.

“There are a number of factors in the Australian economy that may have influenced the RBA board’s decision to continue to hold the cash rate,” Mortgage Choice Chief Executive Officer Susan Mitchell said.

“According to the Australian Bureau of Statistics (ABS), the unemployment rate is sitting at 5.4% and headline inflation is 1.9%, which is below the Board’s target range of 2-3%.

“Further, the Westpac Consumer Sentiment survey found that while consumer sentiment rose in June, pressures on household budgets such as slow wage growth, declining house prices and rising petrol prices are taking a toll on the sentiment results.

“Moreover, the latest National Australia Bank monthly business survey found overall business conditions remain favourable, as conditions in most industries remain at or above average levels.

“CoreLogic’s Hedonic Home Value Index showed that national dwelling values fell 0.2% in June, led by falls in five of eight of the nation’s capitals.

Ms Mitchell said, “The RBA may have the official cash rate on hold but we are increasingly seeing lenders make small out of cycle rate increases due to a mix of factors including wholesale funding costs, macroprudential regulation changes and tightened lending policies.”

“While the official cash rate has remained on hold for almost two years, borrowers and prospective buyers should not take the current low-rate environment for granted,” said Ms Mitchell.

Market expectations are for the RBA to raise the cash rate in 2019. This coupled with tightened lending standards, with regards to a borrower’s capacity to service a loan, creates a complex environment for borrowers.

“Lenders are collecting more information on borrowers’ actual living expenses instead of using a uniform standard for assessing serviceability such as the HEM or HPI benchmarks.

“For this reason, I would encourage prospective buyers and borrowers hoping to secure competitive interest rates to take steps to ensure they are in a healthy financial position by seeking the help of a qualified mortgage broker who can assess their financial situation, determine their borrowing capacity and find them a home loan product suited to their financial needs,” she said.